Small-cap stocks that are high in quality could provide a hedge against stock market volatility, according to Bank of America. With a September rate cut by the Federal Reserve looming, investors have recently rotated into small-cap stocks which, as a group, depend on financing and are domestically oriented. The Russell 2000 has outperformed other major averages this quarter, with the small company index up more than 5% since the end of June.
The group also had to have positive earnings revisions and low refinancing risk, to guard against wider credit spreads or in case the Federal Reserve cut rates less than the market expects. The following names from Bank of America's screen were all rated either buy or neutral by the bank. One of the names on the screen was clothing retailer American Eagle Outfitters , which has only risen about 1% in 2024.
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